1. Service Models: Trends & Best Practices New 3rd Party Managers: AlphaSimplex & Calvert
December 15th 2016

2. Managed360 Website

3. Objectives
Advisors should be able to create a effective service models
Advisors should be able to select the appropriate 3rd Party Manager by applying their knowledge and resources.

4. Agenda
SERVICE MODELS: Zeonia and Jeanne discuss implementation, trends & best practices of service models.
NEW 3RD PARTY MANAGERS: Scott introduces AlphaSimplex & Calvert.

5. HELPFUL DOCUMENT: Service Model Guidelines & Checklist
Download/Print at
Hear more about it on the October Heartland Huddle recording
Inside you will find:
General Guidelines
Questions to Consider
Summary of service models submitted
Example Fee Schedules

6. Service Models
Service Level Agreement Example

7. Global Assets Under Management
AlphaSimplex
Uses Risk-Efficient strategies
Tactical Strategy
Key Management Convictions
They constantly monitor to make sure their portfolios’ risk level (standard deviation) is in line with their target risk level.
They can build on efficient market hypothesis (traditional asset allocation) by adjusting for human behavior
Investors are rewarded for taking on risk only up a certain point and then it actually hurts portfolio performance.
Not intended to outperform stocks and bonds during market rallies, and may underperform during periods of strong market performance.
Inception
Minimums
Global Assets Under Management
Investment Types
1999
$25,000
500 Million
ETF & Mutual Funds

8. AlphaSimplex: Adaptive Markets Hypothesis
Adaptive Market Hypothesis
Addresses the “human factor”
Reconciles efficient market hypothesis with behavioral finance anomalies.
Believes markets are like people: often rational but sometimes emotional
Portfolio Construction Implications
Includes alternatives as core portfolio component
Adapts to changing market conditions and relationships using trend analysis
Manages risk explicitly

9. AlphaSimplex How do they manage risk?
The managers use trend-based forecasts to overweight assets that have been gaining value and underweight assets that have been losing value.
When markets are highly volatile, the managers can reduce the total allocation to riskier assets, such as stocks and commodities, with the goal of keeping the portfolio risk at its designated target.
When market volatility is lower, exposure to riskier assets may offer better opportunities for return, without taking on undue risk.

10. AlphaSimplex Historically, investors generally have not been compensated for above-average market volatility
Economic theory suggests investors should be compensated for accepting higher risk. This accounts for riskier assets (i.e. Stocks) have historically offered higher returns than safer assets (i.e. Bonds)
However, the same relationship has not held overtime, i.e. when investing in stocks during periods of higher volatility vs. periods of lower volatility.
The relationship between return and volatility has been negative ( ).

11. AlphaSimplex: Who could benefit?
Cautious investors who are reluctant to re-enter the market after experiencing losses during the financial crisis and who want to reduce the potential magnitude of losses
Investors nearing or in retirement who would like to decrease portfolio volatility with the goal of reducing exposure to sequence of returns risk.
Investors looking to optimize the return on the risk they are willing to take

12. Additional Alpha Simplex Resources

13. Calvert: Investment Philosophy
Focused on taking Socially Responsible Investing to the next level with competitive investment performance.
Choose investments after performing disciplined analysis of “ESG” Factors
Environmental
Social
Governance (ESG) factors.
Dedicated to being an active shareholder.
Use their proxy votes to elevate the priority of ESG factors
Pursue innovative opportunities for impact.
Inception
Minimums
Global Assets Under Management
Investment Types
1976
$25,000
12.31
Mutual Funds

14. Calvert: Responsible Investments
Believe most corporations deliver a net benefit to society (Products, Services, Job Creation, Sum of Behavior)
Seeks to invest in companies that provide positive leadership in the areas of their business operations and overall activities that are material to improving societal outcomes, including those that will affect future generations.
The Calvert Principles for Responsible Investment guide their selection of companies not only for all indexed investment strategies, but also for many of our actively managed strategies.
Not just negative screening, but pushing companies to improve

16. Calvert: Application of Principles Precludes investments in companies that:

17. Sample Model

18. Calvert Performance

19. Calvert Fund Performance

20. Calvert resources on FHC Website:

21. Additional Model Provider Fee
A Quick Comparison
3rd Party Manager
Additional Model Provider Fee
Investment Types
Minimum
BlackRock
0.10%
ETFs & Mutual Funds
$25,000
MorningStar
0.25%
Mutual Funds
$50,000
Russel Investments
0.00%
Vanguard
ETFs
AlphaSimplex
Calvert

22. What Are Their Strategies?
Strategy
Income / Retirement Focus
Strategic Asset Allocation
Tactical Management
Strategy Explanation
focused on maximizing income then growth during retirement years.
based on client risk/return objectives.
Can be re-allocated on a periodic basis back to the targeted allocation on a quarterly, semiannual or annual basis.
Dynamic investment strategy that actively adjusts a portfolio's asset allocation according to market conditions.
3rd Party Manager

23. Stoyan’s Decision Tree for Selecting 3rd Party Mangers